Macroeconomics: How Money Actually Works

MV = PQ: The Master Equation

M = Money Supply (total dollars in circulation)
V = Velocity (how fast money changes hands)
P = Price Level (average cost of goods)
Q = Quantity of Goods (real output/GDP)

What It Means

If M (money supply) doubles but Q (production) stays the same, P (prices) must double. That’s inflation.

Example: Fed prints $4 trillion → M increases → P increases → your dollar buys less

Why You Should Care

• Money printing dilutes your savings: Every new dollar created makes your existing dollars worth less
• Assets vs. cash: Stocks and real estate keep up with inflation; cash does not
• Wage earners lose: Your salary is negotiated in nominal dollars, inflation eats purchasing power
• Asset owners win: They own things that appreciate with inflation (Cantillon Effect)

Quantitative Easing (Money Printing)

What it is: Central bank creates new money to buy government bonds and assets

How it works:

1. Fed creates money digitally (literally out of thin air)
2. Uses it to buy Treasury bonds, mortgage-backed securities
3. Money enters financial system
4. Banks have more reserves, can lend more
5. Asset prices inflate (stocks, real estate)

Who benefits first:

1. Banks and financial institutions (they get the new money first)
2. Asset owners (stocks, real estate rise)
3. Large corporations (can borrow cheaply)

Who benefits last:

1. Workers (wages rise slowly, if at all)
2. Savers (cash loses value)
3. Retirees on fixed income

This is the Cantillon Effect - those closest to the money printer benefit most.

Real Inflation vs. Official Inflation

Official CPI: ~3% per year

• Cherry-picked basket of goods
• Excludes asset prices (stocks, homes)
• Uses “hedonic adjustments” (quality improvements)
• Understates true cost of living

Real Inflation: ~7-10% per year

• Healthcare: +5-8% annually
• College tuition: +6% annually
• Housing (real): +7-10% in major cities
• Food: +5-8% (despite CPI saying 2-3%)

What This Means for You

If official inflation is 3% but your personal inflation is 7%, you need:

• 7% salary increase just to stay even
• 10%+ returns on investments to actually grow wealth
• Assets that appreciate faster than inflation

Strategy: Own assets (stocks, real estate, Bitcoin), minimize cash holdings

Who Really Has Power?

Not the President. Not Congress. The real power is in:

1. Central Banks (Federal Reserve, ECB, Bank of Japan)

   • Control money supply
   • Set interest rates
   • Can create unlimited money
   • Unelected, minimal oversight

2. Large Banks (JP Morgan, Goldman Sachs, etc.)

   • Get newly created money first
   • Can borrow at lower rates
   • “Too big to fail” = taxpayer bailouts

3. Asset Owners (billionaires, corporations, institutional investors)

   • Benefit from asset inflation
   • Can borrow against assets
   • Compound wealth faster than wage growth

Why this matters: Understanding the system helps you position yourself correctly (own assets, not cash; invest early; understand macro trends).

Recommended Resources

Books

• “The Bitcoin Standard” by Saifedean Ammous - Understanding sound money
• “The Price of Tomorrow” by Jeff Booth - Deflation vs. inflation
• “Principles for Dealing with the Changing World Order” by Ray Dalio - Macro cycles

YouTube Channels

• Lyn Alden - Macro analysis, inflation, monetary policy
• Raoul Pal - Real Vision, macro trends, crypto
• Jeff Snider - Eurodollar system, how money actually works

Podcasts

• The Investor’s Podcast - Macro interviews
• What Bitcoin Did - Bitcoin, macro, sound money
• Hidden Forces - Deep dives on economic systems

Tools

• FRED (Federal Reserve Economic Data) - All the data
• TradingView - Charts for everything
• Lyn Alden’s Newsletter - Best macro analysis

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Next Steps

• Understand the system → Position yourself accordingly
• Own assets → Don’t hold too much cash
• Invest in scarce things → Bitcoin, real estate, equities
• Track macro trends → Know when to be aggressive or defensive
• Teach others → Share this knowledge

This content is designed for YouTube deep-dives, Twitter threads, and educational content. It’s both at-a-glance (cheat sheet) and in-depth (explanations).